Schlumberger is cutting 21,000 jobs in response to the pandemic and related oil crisis. CEO Olivier le Peuch says the second quarter “has probably been the most challenging quarter in the past decades.” The company has recorded huge drops in revenue, which fell by 35% year-on-year and 28% sequentially.

The 21,000 jobs correspond to almost a quarter of the company’s total workforce of 85,000 people. Schlumberger expects to pay around USD 1 billion in severance costs related to the layoffs.

The oilfield services provider is faced with a new oil crisis caused by the Covid-19 pandemic. Demand for oil has dropped significantly and oil companies are cutting back on capital investments to maintain a healthy balance sheet. Shell has even decided to cut dividend for the first time since the Second World War.

“Schlumberger second-quarter revenue declined 28% sequentially, caused by the unprecedented fall in North America activity, and international activity drop due to downward revisions to customer budgets accentuated by COVID-19 disruptions. This speaks volumes about an industry confronted with historic oil demand and supply imbalances caused by demand destruction from the global COVID-19 containment effort”, Le Peuch said.

Revenue amounted to USD 5.4 billion in the second quarter compared to USD 8.3 billion in the same period last year. The company booked a net loss of USD 3.4 billion as a result of USD 3.7 billion in impairment charges including the USD 1 billion in severance costs. The other impairment charges largely relate to the depreciation of assets. In the first quarter of the year, Schlumberger also wrote of many billions in impairment charges, resulting in a net loss of USD 7.4 billion. Excluding the charges, net profit for the second quarter amounted to USD 69 million, compared to a net profit of USD 492 million last year.

USD 1.5 billion cost reductions

In response to the weak demand, Schlumberger has initiated a cost reduction program which aims to remove USD 1.5 billion of structural costs annually and the layoffs ware a big part of this. “We are combining our 17 product lines into four divisions, structuring our geographic organization around five key basins of activity, and streamlining our management structure”, Le Peuch said.

Hed added that he remains optimistic about Schlumberger’s future. “Looking at the macro view in the near-term, oil demand is slowly starting to normalize and is expected to improve as government measures support consumption. However, subsequent waves of potential COVID-19 resurgence pose a negative risk.”

The majority of the USD 1 billion in severance costs will be paid during the second half of 2020.